THE WEAK FORM OF INFORMATIONAL EFFICIENCY: CASE OF TUNISIAN BANKING SECTOR

Abstract

This paper investigates the weak form of market efficiency hypothesis over eleven Tunisian banks listed on the Tunisian Stock Exchange during the period July 2012 to June 2013. GARCH (1, 1) and its extension EGARCH (1,1) are developed in order to describe the sign and size of financial volatility asymmetry. The results indicate that the Tunisian stock market, in particular the banking sector would not show characteristics of market efficiency. Some of the bank securities asymmetrically reacted to good and bad news. The presence of the leverage effect would imply that negative innovation (news) has a greater impact on volatility than a positive innovation (news). This implies that this sector is not efficient under the weak form of the hypothesis. The implication of rejecting the weak form of efficiency for investors is that they can better predict stock price movements and abnormal earnings.